My Pooling Questions to "AllExperts.com" and Answer per Frederick Scott CMM

At 6:41pm on June 7th, 2008, DrWAVeSport said…
Subject Forced Pooling per Haynesville Shale Play
Question I have read so much per forced pooling. I Live in Shreveport, LA...Approx. 90% of recent legal notices (6/17 thru 7/8) per LA Office of Conservation where O&Gs file applications, contain clauses of "force pooling" & "integrating of all separatly owned tracts, mineral leases, and other property interests...with each tract sharing in unit production on a surface acreage basis of participation..." What exactly does this mean to (us) the landowners (who are attempting to acquire better land leasing deals)? Are they attempting to get out of lease bonus moneys? Nothing really sounds great about being force pooled. If you could give me (and my fellow Haynesville Shale stakeholders) the ups and downs per these forced pooling clauses if they are granted by the LA Commissioner of Conservation...Thanks so much for your help.

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Answer Dr; I'm not sure if you're talking about the pooling clause that is commonly found in leases, or about the pooling process that occurs when companies either can't locate or can't come to an agreement with some of the mineral owners in a tract they are attempting to lease.

In the first example, don't worry about it. Most leases have pooling and unitization clauses that allow the lessee to "pool" or "unitize" several or more leases together in order to increase production from a field of oil or gas. If they were not allowed to do this, much production could remain in the ground. While there is the potential for abuse, in most cases you will never even get this clause activated as it is used mainly on fields that are nearing depletion.

This type of pooling and unitization elects one well to inject a substance into it (perhaps salt water) in order to "push" the oil or gas out the other wells that have been pooled. Each mineral owner would share in the production from ALL the wells that were unitized. While your royalty fraction will be less in such a scenario (the newly created unit includes more land than your original lease did) you will still potentially receive more money in the long run as more of the oil or gas reserves are able to be recovered.

If you are instead referring to the forced pooling process; this basically means that you will be "leased" at terms dictated by the State; based on what they think is "fair." A pooling order generally is good for only one year or less, meaning that if they don't drill within the time specified in the pooling order, the order will expire and you will be free to lease again. If you are pooled, and there is production from the well that is drilled, you will be paid based on your election of one of the several options afforded you in the pooling order. If you ignore the pooling order, a choice will be made for you by the terms of the pooling order.

Some people prefer to be pooled, rather than lease to a company they can't reach an agreement with. They feel that the State will offer better terms than the company was offering.

Hope this helps explain the pooling process.

Frederick M. Scott CMM




Answered Question...I want to thank Mr. Scott for his timely and knowledgeable information (and for putting it into an understandable format). I appreciate him answering my questions that I sent to "AllExperts.com" for his reply, last week.

Thank you again, "AllExperts.com" I have enjoyed all the Q&As that your experts put together that are helping the rest of us learn more about the O&G Industry.

DrWAVeSport 6/7/2008 p.m. Delete Comment

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Comment by DrWAVeSport Cd1 on June 8, 2008 at 9:13am
Greyshades...Good Sunday morning to you. Thanks for the info. I do believe that the statutory force pooling is very different from the old "rule of capture." However, in the climate (looking at $13 for NG and $150 per Oil) don't you think that the costs associated with drilling, etc. are not nearly as threatening (again I say, under the conditions of today's prices) statutory force pooling is not so ominous a thing as it maybe has been in the past (80's and 90's)?

And, if the Chesapeakes, and the Petrohawks, and the Goodriches, and so on and so on...are willing to bet the farm, so to speak, on this Haynesville shale bonanza...the Barnett bonanza..., etc., then the force pooling is kind of like having your investment in the making of a hit movie, when the real money is made a year later when the DVD comes out.

I still cannot find a scenario...in this strike...where a mineral owner is dealing with bills from the O&G company from being statutory force pooled...in LA...

If the moneys are so great that O&G companies are willing to go into Billions of dollars of debt and spend Millions/Billions to purchases leases....just for the "promise"...it would seem to lessen the "scariness" of possibly finding yourself in this kind of situation. And...that is what I really have been looking for...someone with knowledge...who could tone down some of the "disaster" comments that are being made concerning same. (i.e., disaster for landowner).

Thank you for your reply. Am enjoying your comments to fellow bloggers.
And...agree with you..."What the X#@% am I doing blogging this stuff at 10:30 p.m on a Saturday night!" (Ha! Ha!)

Nice to meet you, blogwize. DrWAVeSport 6/8/2008
Sunday morning, coffee in hand, laptop in lap!
Comment by Greyshades on June 7, 2008 at 10:36pm
Also, and this is an important point: In Louisiana, if an operator has not leased your property to someone else, they CANNOT come on your land and drill on it. It just gives them the right to produce from the common reservoir, subject to your rights as an unleased mineral interest owner.

What in the hell I'm doing reading this at 10:30 on a Saturday night, I do not know. Best wishes all.
Comment by Greyshades on June 7, 2008 at 10:33pm
Sorry, but Frederick Scott CMM is WRONG about how conservation units work in Louisiana. The process he is describing sounds like what they do in Oklahoma.

Of all of the topics I have seen addressed in the media and online, the least understood appears to be compulsory unitization, or "forced pooling" as some like to call it. The law on compulsory unitization was introduced in Louisiana in the 1940s-1950s. Before that law, oil and gas production in Louisiana basically operated (with some exceptions) on a “rule of capture” -- if you could drill under your land and get at it, it was yours and yours alone. Of course, that meant your neighbor could drill a well on his property and keep all of the mineral production, even if he was theoretically draining minerals from under your property. Your only solution was to drill your own well and extract the minerals faster than your neighbor.

Compulsory unitization says that everyone in the unit will share in the production from a well drilled inside the unit, regardless of where in the unit the well is drilled, based on their acreage as a percentage of the total unit acreage. However, no one gets a free ride – all persons inside the unit have to bear their share of costs.

If you have signed a lease, you have basically authorized the lessee to take your share of the unit revenue, bear all of the costs, in return for paying you a bonus and a non-cost-bearing royalty percentage. If you are an unleased interest owner inside a conservation unit, you get to share in 100% of your share of the unit revenue, but it is subject to your obligation to reimburse the operator for your share of the drilling, completion and operating costs. If you don’t agree to pay your share of costs out of pocket, it gets deducted out of your share of revenues.

Contrary to Mr. Scott's suggestion, Louisiana does not "impose" lease terms on the land or mineral owner like Oklahoma. Louisiana also does not "freeze" people out of units (like some of the Texas folks from Twin Cities Development have been trying to say).

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